April 16, 2010 - California officials want money from the nation's small tobacco companies that have avoided paying into an escrow account for the states.

In the mid-1990s, all 50 states and two U.S. territories sued the country's major cigarette manufacturers to recover Medicaid costs related to cigarette smoking. They also sought to impose restrictions on the makers' sales and ad practices. The lawsuits were settled in 1998. As part of the Master Settlement Agreement, manufacturers were banned from targeting youth in their advertising and were ordered to make payments to the states for all future cigarette sales. The states, in exchange, agreed not to file future claims.

The agreement allowed manufacturers who were not parties to the lawsuit to join the master agreement within 90 days, making them exempt from having to make future payments with certain restrictions.

Unlike the Participating Manufacturers to the Master Settlement Agreement (MSA), Non-Participating Manufacturers (NPMs) have not been released from State claims. Some small tobacco companies were not a party to the original lawsuit or the subsequent agreement, and opted not to participate in the master agreement. But the master agreement allows states - including California - to enact statutes forcing such non-participating manufacturers to place money into escrow each year to settle future judgments based on the number of cigarettes sold in that state.

The California Department of Justice, led by Attorney General Jerry Brown, is sponsoring legislation this session (California State Legislature, 2009–2010 session) that would allow the attorney general's office to pursue tobacco companies that are not paying the state for treating smoking-related illnesses.The legislation, outlined in Assembly Bill 2496, would amend the California Cigarette and Tobacco Products Licensing Act of 2003 to allow the attorney general to pursue tobacco companies that ship their products into the state without being licensed to do so.

Introduced by state Assemblyman Pedro Nava, D-Santa Barbara, the Tobacco Damages Recovery Act is aimed at closing loopholes in the Master Settlement Agreement that major tobacco companies signed in 1998.

But Nava said many smaller tobacco companies have avoided paying California and other states. "My legislation will make smaller tobacco companies pay their fair share and not allow them to continue to break the law," said Nava, a candidate for attorney general. "We will hold them accountable for all sales of cigarettes in California and the corresponding health care costs caused by smoking which are passed on to all of us."

Assembly Bill 2496 on Monday, April 12th passed the Assembly Governmental Organization Committee with bipartisan support. The bill will next be heard in the Assembly Judiciary Committee on April 20.